California Outlook Revised To Positive On Budget Proposal's Focus On Paying Off Debt And Building Reserves
|Publication date: 14-Jan-2014 14:18:53 EST|
SAN FRANCISCO (Standard & Poor's) Jan. 14, 2014--Standard & Poor's Ratings Services revised the outlook on all its ratings for California to positive from stable. In addition, we affirmed our 'A' long-term ratings and underlying ratings (SPURs) on California's $75.4 billion of general obligation (GO) debt. Simultaneously, we affirmed our 'A-' long-term ratings and SPURs on the state's $10.3 billion of appropriation-backed debt. "The outlook revisions reflect our view that Governor Jerry Brown's fiscal 2015 budget recommendation would build upon the improvements made to the state's finances in recent years," said Standard & Poor's credit analyst Gabriel Petek. "In particular, the plan's emphasis on debt repayment and appropriating funds to its reserve could be helpful in strengthening the state's fiscal position, in our view," added Mr. Petek. If a budget with such provisions were enacted, we believe that, within the two-year outlook horizon, the state's finances could be consistent with a higher rating, most likely of one notch. But the proposal also initiates reforms to some of what constrains the state's credit quality structurally. In so doing, the proposal opens to the door to longer-term and more significant rating improvement. Specifically, it offers a revamped approach to funding a rainy day reserve designed to counteract the effects of the state's revenue volatility. The budget proposal also highlights that the state teachers' retirement system (CalSTRS) is in need of a long-term funding strategy. And although the governor's proposal stops short of defining a plan for that, citing the need for one in the budget recommendation marks an important first step, in our view. But risks to the direction of the state's credit quality remain. RELATED CRITERIA AND RESEARCH Related Criteria
- USPF Criteria: State Ratings Methodology, Jan. 3, 2011
- USPF Criteria: Appropriation-Backed Obligations, June 13, 2007
- USPF Criteria: Financial Management Assessment, June 27, 2006
- Criteria: Joint Support Criteria Update, April 22, 2009
- Understanding California's Fiscal Recovery, Jan. 14, 2014
- U.S. State And Local Government Credit Conditions Forecast, Dec. 17, 2013
- California full analysis, Jan. 14, 2014
Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
|Primary Credit Analyst:||Gabriel J Petek, CFA, San Francisco (1) 415-371-5042;|
|Secondary Contact:||David G Hitchcock, New York (1) 212-438-2022;|
No content (including ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S&P. The Content shall not be used for any unlawful or unauthorized purposes. S&P, its affiliates, and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions, regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P’s opinions and analyses do not address the suitability of any security. S&P does not act as a fiduciary or an investment advisor. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: email@example.com.